2022 Budget Statement: Is achieving broad-based support and disciplined execution the way forward?
In a few days, the Minister of Finance or a representative from the ministry will present the budget statement for the 2022 financial year to the Parliament of Ghana. For many Ghanaians, however, the reading of the budget has become a mere ritual, and as a result, they are either indifferent or hostile towards it.
However, the significance of a budget, and the impact it has on the livelihoods of citizens, are good reasons for every Ghanaian to take active interest in.
The budget, as will be read in the days ahead, is the key instrument for the execution of government economic policies and programs. It is a projection of the government’s expenditures and revenues for the ensuing fiscal year and it informs the public as to how the government plans to run the economy.
But, most importantly, the budget signals the overall health of the country’s economy and outlook of the impact of the economic policies and programs.
The context for the 2022 budget is well established and appreciated by all Ghanaians. The pandemic’s impact on livelihoods and the economy will linger in the short to medium term, despite the over GHS19billion spent on mitigating interventions.
The 2022 budget will therefore have a difficult task of dealing with the high debt level, widening fiscal deficit, and how growth will be financed at a modest cost. It is also expected that the government will take the required steps to achieve fiscal consolidation at a pace that balances risks and growth.
One of the critical stimulating initiatives that has been emphasized most, ahead of the budget reading is, the country’s digitalization agenda and move to digitize all aspects of the Ghanaian economy. After some years of embarking on this digitalization drive, the country must begin to have conversations about the impact of this drive and demonstrate the real gains across all sectors.
Conversations about how digitalization is improving productivity, how improved national identification and address systems will facilitate growth of credit to the private sector, and how our tax net is widening are some of the important considerations. This will ensure that the exact impact of digitalization on the country’s economic growth can be quantified to validate the motivation for further investments.
The financial sector will continue to be a key anchor in driving economic success. It must remain liquid and well-capitalized to support the growth of the private sector. It is expected that the extent to which the country’s fiscal deficit will be financed from domestic sources will be limited to ensure more funding access to the private sector, which is in fact, the engine of growth for the Ghanaian economy.
Over the last two years, the fiscal deficits were financed largely from domestic sources- that is – over 70% net domestic financing. It is therefore not surprising that Bank’s holdings of government instruments have increased over 60%.
Government could also consider lessening the impact of further levies – currently at 10% of operating profits – on the finance industry in a bid to improve the available liquidity pools to fund private sector growth initiatives.
This should be done while encouraging the central bank to maintain the monetary stimulus responses, as the true size of non-performing exposures mostly crystallize post downturn.
The task ahead is daunting, and it is unclear what further levers are available to the government to return the economy to its pre-pandemic growth rates of 6-8% per annum.
Now, more than ever, a more collaborative approach of all key stakeholders and an effective execution of agreed policies and programs present the only logical response. The managers of the economy must be agile in making the required resource trade off decisions but achieve a broad-based support for revised policies and programs.
